Latin America Sponsored by
by Charles W. Thurston
Latin America Correspondent
thurstoncw@rodmanmedia.com
The implosion of Venezuela’s econ- omy and the accompanying crash in foreign exchange has had a
choking effect on manufacturers like paint
and coatings leader Axalta, which was
compelled to write down $70.9 million in
local assets as of the end of first quarter.
Sales eroded rapidly for Axalta in
Venezuela over the past year. “Prior to
the deconsolidation, for the three and
six months ended June 30, 2017, our
Venezuelan subsidiary’s net sales represented $0.7 million and $2.5 million of
our consolidated net sales, respectively,
compared to net sales for the three and
six months ended June 30, 2016 of $19.3
million and $29.2 million, respectively,”
Axalta reported.
Part of the impact was from foreign
exchange devaluation. “Due to the challenging economic conditions and political
unrest in Venezuela, which have resulted
in increasingly restrictive foreign exchange
control regulations and reduced access to
U.S. dollars through official currency exchange markets, during the three months
ended June 30, 2017, we concluded there
was an other-than-temporary lack of exchangeability between the Venezuelan bolivar and the U.S. dollar,” Axalta reported.
“We recorded a loss of $70.9 million
on our condensed consolidated statement
of operations. This loss was comprised of
the subsidiary’s net assets for $30.0 million, counterparty intercompany receivables with our Venezuela subsidiary for
$35.0 million and unrealized actuarial
losses associated with pension plans in accumulated other comprehensive income
of $5.9 million, the company detailed.
Political Crisis Deepening
Presidential elections on July 30 were marred
by clashes between police and rioters, and
deaths were reported. U.S. President Donald
Trump reacted to the alleged irregularities
in the election process, instituting sanctions
on Venezuelan President Nicolás Maduro,
who was re-elected. Meanwhile, Russia’s
Rosneft delivered Venezuela’s state-owned
PDVSA over $1 billion in April in exchange
for a promise of oil shipments later, Reuters
has reported.
The economy is predicted to contract
another 12 percent this year, following
last year’s contraction of 18 percent,
according to a July IMF prediction.
Inflation over the first seven months of
the year has been reported at nearly 250
percent, and in April, IMF predicted 2017
inflation at 720 percent and and 2018 in-
flation at 2,068 percent. Clearly domestic
sales have flat-lined.
Perhaps even more damaging to lo-
cal manufacturing has been the meteoric
plunge in the value of the bolivar relative
to the U.S. dollar, down close to 100 per-
cent over the past three years. The official
exchange rate is around 2,000 bolivars to
the dollar, but the black market value of
one U.S. dollar is reportedly in the 10,000
to 15,000 bolivars range and rising.
Post-Recovery?
Venezuela is a country of 32 million
with a GDP of $540 billion, potentially
making it one of the largest markets in
Latin America. The economy is largely
dependent on petroleum production and
downstream refining, which represent 96
percent of all exports, according to the
World Bank. As such, the demand for
industrial coatings, especially protective
coatings, should normally be robust.
Similarly, the country’s $17,700 per
capita GDP level also means the country
has a fairly affluent lower- and middle-
class population,compared to $16,000
in Brazil or to $15,600 in the region as
an average, suggesting that consumption
of architectural lines should be high in a
stable economic situation.CW
Venezuelan Economic Crash
Devalues Manufacturer Assets
